Divine Catalysts: Religion and Portfolio Choices

Abstract

This paper examines how religious framing influences equity investment and portfolio diversification. To do so, we exploit religiously-framed trading sessions held during a major festival emphasizing new beginnings and long-term prosperity as a cue. Individuals whose religion is associated with the festival invest significantly more during these sessions and buy new stocks, while others do not respond. We rule out alternative explanations including gambling motives and sentiment effects. Consistent with the emphasis on long-term prosperity, these new positions are held longer than other portfolio holdings. Consequently, they lead to persistent increases in equity portfolio size and mechanically increase diversification, without reducing risk-adjusted returns. Our findings highlight that religious framing can nudge individuals towards long-term investments, with implications for wealth accumulation. Joint paper with Pulak Ghosh, S. Lakshmi Naaraayanan and Purnoor Tak.